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Since 2001, Mutuo has worked to promote new mutuals. This has led to renewed growth in the mutual sector, with public sector mutuals established in health, housing and education and new community based businesses ranging from football to childcare. Mutuo operates as a not-for-profit Society committed to: Campaigning for a better understanding of the benefits of mutal businesses Conducting and publishing policy research on issues of importance to the mutual sector Developing innovative new mutual businesses for the delivery of public services
Citation preview
Public Services: Made Mutual
By Cliff Mills
Since 2001, Mutuo has worked to promote new mutuals. This has led to renewed growth in the mu-
tual sector, with public sector mutuals established in health, housing and education and new commu-
nity based businesses ranging from football to childcare.
• Mutuooperatesasanot-for-profitSociety,committedto:
• Campaigningforabetterunderstandingofthebenefitsofmutualbusinesses
• Conductingandpublishingpolicyresearchonissuesofimportancetothemutualsector
• Developinginnovativenewmutualbusinessesforthedeliveryofpublicservices
Public Services: Made Mutual1
About Mutuo
This publication is the first in
what will be a series of pamphlets
looking at the potential for new
mutualorganisationsprovidinga
rangeofservicestothepublic.
Ourobjectiveistohighlight
where high quality mutuals can
combine business efficiency with
accountability to customers, staff
and other stakeholders.
Mutuo is interested in exploring
ways that former state and
municipalproviderscanachieve
greater public satisfaction in
servicesthathavehigherdegrees
of employee, user and wider
stakeholder engagement. In
particular,canthestateachieve
greater accountability for the
taxpayerinpublicservicesby
fostering a greater sense of
ownership?
ThenewCoalitionGovernment’s
Big Society agenda has heralded a
rapid growth of mutual business-
likeproviders,createdfrom
state and municipal bodies. The
immediate question is whether
theseserviceswillbeableto
surviveinaneraofreduced
funding, in which case there will
bequestionsoverthebusiness
basis for these arrangements. At
the same time, there are questions
about what the changes will
meanforthequalityofservices
tothepublicandthelevelsof
engagement among staff.
It is not easy to establish
successful mutuals. New business
disciplines and a culture of
engagement with stakeholders
must be adopted and built into
thegovernancestructuresof
thesenewmutuals.Government
must therefore be clear about
the purpose of new mutuals that
arespunoutofstateproviders,
andthegovernancestructures
adopted must reflect this primary
purpose.
To retain an ethic of customer/
publicservice,theroleofusers
must be built into these new
providers.Whereemployees
are the key stakeholders, proper
competitionmustprovidethe
basis for proper accountability to
thetax-payer.Imaginativemutual
solutions are to be welcomed in
the public sector, and can with
care, offer greater engagement
and co-operation between
providersandusers.
We hope that through this series,
we will assist in sharing experience
and expertise that may be adopted
in similar projects. Our aim is that
established mutuals will be able
to share their understanding of
member dynamics and mutuality
with new entrants to the sector.
Peter Hunt
Chief Executive
Mutuo
Public Services: Made Mutual 2
Preface
“Ourobjectiveistohighlightwherehighqualitymutuals
can combine business efficiency with accountability to
customers, staff and other stakeholders”
Co-operativeandmutualorganisationshaveamajor
roletoplayinprovidingpublicservicesandrenewing
modern society.
TheCoalition’sprogrammeforgovernmentsetsout
avisionofwhatthenewgovernmentissettingoutto
achieve.Therearethreemainthemes
• movingawayfrombiggovernment,centralisation
and top-down control
• redistributing power away from the centre to
councils, communities and people in their homes
• helping people to come together, empowering
citizens to work together within communities to
create a Big Society
Thefirsttwoareeffectivelytwosidesofthesamecoin:
centrally-drivenbiggovernmentcan only be cut down
if power is relocated elsewhere – away from the centre.
Thethirdtheme,however,isessentialtoensurethat
pursuing the first two is not simply an exercise in re-
arrangingfurniture.Biggovernmentandbureaucracy
areonlyreallyreducedifindividualpeoplethemselves
regain–orreclaim–powerovertheirownlives.
Itisourargumentthatmutualandco-operativeideas
haveamajorparttoplayindeliveringthesethemes
andtheoverallvision.Indeedwedonotbelievethat
thevisioncanbedeliveredwithout such ideas.
Traditional mutuality, between the mid 19th and mid
20th centuries, established the context in which
individualswithincommunitiesroutinelyandnormally
workedtogetherforcollectivecommonbenefit.It
providedsomeofthemechanismsbywhichpower
was shared locally, and by which citizens were
engagedintheessentialservicestheyneeded.It
played a central role in creating the institutions, the
culture and society of the UK prior to the emergence
of the welfare state. Mutuality was part of the DNA of
the welfare state, and informed what is often today
characterised as the public sector ethos.
The second half of the 20thcenturyisaverydifferent
story. Mutuality was side-lined in the post-war years,
particularly in the 1980s and 90s. The basic ideas
seemedtohavebecomeirrelevantinanindividualistic
and consumerist age. Mutuality declined.
However,theideassurvived.Theywerenotbroken,
just out of tune with the contemporary culture. Today,
those ideas seem to be finding new resonance. As
thesearchforanewmodelofpublicserviceprovision
continues and concerns about traditional business
modelsgrow,mutualityandco-operationhave
acquiredanewrelevance.Infact,inthelasttenyears
mutuality in the UK has been through a substantial
period of transformation and renewal.
Manynewmutualshavebeenestablishedtoprovide
publicservicesinhealth,educationandcommunity
services.Over1.5millionusersandemployeeshave
joined these organisations as members.
Public Services: Made Mutual3
The role of Mutual organisations in providing public services
Introduction and summary
There has been significant
progressindeveloping
an understanding of what
membershipcanachieve,new
ideasaboutdeliveringcompetent
governancewithinthecontext
ofarepresentativedemocratic
structure, as well as progress
in new mechanisms to secure a
commitment to the public good.
Mutuality has been re-emerging to
meettheneedsofaverydifferent
age, and it is no accident that it
featured in the manifestos of all
three leading parties.
Modern mutuality is needed
todaytoprovidethemechanisms
through which citizens in
communities can participate and
haveasay–asusersandstaff–in
theprovisionofessentialservices.
Itisneededtohelpthedrivefor
increased business efficiency
based on local accountability. It is
neededtoprovideanalternative
business model to traditional
companies, a mechanism for
trading in the community or public
interest,ratherthanforprivate
interest. It is needed to enable the
statetostandbackfromservice
delivery,andfrombureaucratic
regulation.
Forthoseofuswhohavespent
much of the last decade engaged
in this renewal of mutuality, the
corethemesoftheCoalition’s
programmeforgovernmenthave
a familiar ring to them; but there
are some big differences. They
are being openly put forward as
convention-challenging,radical
reform,whichhavebeenputat
the heart of the programme for
government.Sotheseideasarenot
incidental or merely aspirational:
they are the opening paragraphs of
theCoalition’sstatementofintent,
ofitsvision.Furthermore,theynow
define the ground upon which the
Coalition is built, and by which it is
likely to be judged.
This means that the stakes are high.
However,itisalsoreassuring
to find that the three themes
ofreducingbiggovernment,
redistributing power and enabling
people to take control of their
livesare,intruth,attheheart
of the traditions and structures
of co-operation and mutuality.
It is also reassuring that there
are now in existence large and
successful modern institutions,
based upon a heritage of pro-
activecitizenship,whichcaptured
individualself-interestandby
channellingitthroughcollective
self-help produced economically
sustainable mutuals.
We do not claim that those
traditions and structures now
havealltheanswerstotoday’s
questions. But we would argue
that those traditional institutions
and the new mutual organisations
described below are a good place
to start; and that the hard work
and thinking about forms of co-
operativeandmutualownership
undertakenoverrecentyears
arenowavailabletoassistin
implementingtheCoalition’s
programme.
Cliff Mills
Mutuo
October 2010
Public Services: Made Mutual 4
“Manynewmutualshavebeenestablishedtoprovide
publicservicesinhealth,educationandcommunity
services.Over1.5millionusersandemployeeshave
joined these organisations as members. ”
Context
Our proposition is that mutuality has a significant
part to play in the work of the Coalition. What is the
context for this?
Broadly,itiscontainedwithintwoover-archingand
unfolding stories, in what we usually call the public
andprivatedomains.
Public domain
In the public domain, there is a crisis of cost and
funding. The post-war settlement, making basic
provisionforthehealth,welfareandwell-beingof
all citizens through central taxation, has become
problematic and needs to be rethought. The
growingcostofprovision,therisingexpectations
ofindividuals,andthedifficultyfordemocratically
elected politicians of telling the electorate that they
havetopaymoreorreceivelesshasresultedin
decadesofmanagerialinitiativestosecurebetter
value,greaterefficiency,andmoreforless;butitcan’t
goonforever.
Theseparationofcommissioningandprovision(one
suchmanagerialinitiative)continuestobeseenasa
keypartofsecuringvalueandefficiency.Itclearly
providesamechanismfordoingso,buttheactof
separation does not of itself guarantee the outcome.
Managers doing things differently need to do that.
Where that does not happen, there is no mechanism
forcitizens,astaxpayersorusersofpublicservices,
to make sure that it does happen.
“In the public domain, there is a
crisis of cost and funding”
1
Thecommissioner-providersplithasotherpotential
benefits.Itprovidesthebasistoenablethestateto
withdraw from the direct costs and the political and
financialrisksoftheownershipofprovision.Itcreates
thepossibilityofexpensiveasset-heavyserviceslifted
outofpublicsectorborrowing.Ithelpstoremove
theriskofpoliticalinferenceinthedeliveryofvital
services,whichmustbeoperatedforthepublic benefit.
But there are two big questions at the heart of this
unfolding story:
1. Whilstpursuingefficiencyandvalueformoney
iscritical,itdoesnotprovideasolution.The
growingcostsofprovisionandtherising
expectationsofservice-usersareunsustainable
on the current basis. The current financial
position has to be addressed, and there are now
great concerns about likely drastic measures
havinganimpactonthoseleastabletohelp
themselves.Butwhatcanthepoliticiansdo?
2. Assuming that the state continues to withdraw
fromtheownershipofprovision,whatisthe
futuremodelfortheownershipofpublicservice
providers?Perhapsthebiggestchallengeatthe
heart of this question is this: what will be the
driverofefficiencyinpublicserviceprovision?
We mean here not just lowest cost, but efficiency
in the longer-term public interest.
Thesetwoissuesarefundamentaldriversoftheneed
for change, and this is the public sector context for
Public Services: Made Mutual5
theCoalition’spriorities:moving
awayfrombiggovernment,
centralisation and top-down
control; redistributing power
away from the centre to councils,
communities and people in their
homes; helping people to come
together, empowering citizens to
work together within communities
to create a Big Society.
Private domain
Intheprivatedomain,the
problems we face are shared by
other nations. The collapse of the
banking sector has not only left
a financial problem in its wake;
it has confirmed a more serious
structuralproblem.Privately-
owned banks do not act in the
public interest. Whilst traditional
privateinvestor-ownershiphas
been the engine of economic
growth, it has its draw-backs,
particularly when it dominates to
the point where there is no real
biodiversityofownershipand
business models.
Thepursuitofprivategain
hassuccessfullyprovidedan
investmentincentiveforhundreds
of years now, but it is not just
alackofbiodiversitywhichis
leading people to call for different
business models. The diminution
of natural resources, the need to
cut carbon emissions, the desire
to address social inequality and
the growing gap between rich
and poor – these are all raising
questions about the traditional
way of doing and funding business.
The emergence in the last
decade or so of corporate social
responsibility, and a burgeoning
sector of new businesses bearing
the title “social enterprise”
areevidencethatsomethingis
happening, though financial results
still remain the normal measure of
success, and the FTSE share index
continues to be recognised as the
gauge of the health of UK business.
Financialsecurityandalevelof
prosperity clearly play a part
inachievinghumanhappiness,
but home, work, leisure and
community all play a part. We
don’tneedresearcherstotell
us that there is more to life than
Public Services: Made Mutual 6
work and endless pursuit of more; that a more unequal
society is a less happy one; and that stillness and human
relationshipshaveavitalplace.Wecertainlyshouldbe
looking at the cause of the recent economic crises and
improvingregulationwhereappropriate.Butweshould
alsorecognisethattraditionalbusinessmodelshave
taken a battering, and there is an appetite for looking at
different approaches.
Public and private
Lastly in looking at the broad context, there is a
common theme that is emerging in both the public
andtheprivatedomains.Thisistherecognitionof
thelegitimacyofawiderrangeofinterestsorvoices.
Bothstate-ownershipandprivateinvestor-ownership
can justifiably be accused of a narrowness of outlook.
It is clear that employees, customers and users,
suppliers, local residents and a wide range of other
partiesfrequentlyhavealegitimateinterest,and
need to be taken into account, in a whole range of
activities.Publicconsultation,orpassingreference
inboardminutesthatcertaininterestshavebeen
taken into account do not necessarily constitute an
adequate participation of those wider interests in key
decision-making. We are hide-bound by an inherited
structuralexclusivity.Sovereigncontrolbyinvestors,
orthestate(orsomeunelectedproxyforthestate)
may make life easier for managers, but they pose
challenges of fairness and personal significance in a
modern democracy.
How can mutuality help?
Public Services: Made Mutual7
The starting point is to
understand where traditional
mutuality came from.
This is a story about market
failure. In the late eighteenth and
early nineteenth centuries, many
people could not get access to
basicgoodsandservicesatafair
price. Food, healthcare, protection
against sickness or death of the
bread-winner, finance to own their
homes – access to things which
we today take for granted was
eithersimplynotavailable,ornot
availableatafairpriceoronwhat
we would regard as acceptable
terms. There was practically
no consumer protection, no
financial regulation, no employee
protection, and no protection of
theenvironment.
Forthevastmajorityofpeople,
the only solution to this was self-
help: if they wanted access to
something, then they needed to
workoutthesolutionthemselves.
The self-help solution they found
was this: if they pooled their
need, within communities, for
particulargoodsandservices,
then they could establish what
intoday’slanguagewewould
call a sustainable business. As
customers, they could establish a
business, which they owned and
controlled,todeliverthegoods
andservicestheywanted.
It would only work if they
committedthemselvestotrading
withtheirlocalprovider.Ifthey
did, then the business could
survive.Iftheyweredissatisfied
in some respects with what was
on offer, as owners of the business
(members)itwasforthemto
raise those concerns and get
thebusinesstoimprove.Whilst
walking away from the business
was an option, the business
wouldnotsurviveandcontinue
toprovidelocalservicesunless
the loyalty of customers was
maintained. Where there was
effectivelynoalternativesupplier,
this was clearly not an outcome
that people wanted. So it was
normal for members to use their
membershiprights–theirvoice
andtheirrepresentativestructures
–todriveimprovementand
change, to make sure that their
societyservedtheirinterestsas
owners and customers.
Such businesses were
fundamentally different from
traditional businesses. Normally,
a business is established where
a promoter sees an opportunity
(agapinthemarket)toprovide
goodsorservicesandthereby
to generate a financial return.
Mutual businesses were not
established on this basis. They
wereestablishedsimplytoprovide
aservice.Theyneededtobe
profitable(incomemustexceed
expenditure)andinvestforthe
future; but generating a surplus
or profit was not their reason
for existence. Their reason for
existencewastoprovideaservice
where otherwise there would be
none, and the community would
suffer as a result.
The different types of traditional
mutualbusiness(co-operative
societies, building societies,
friendlysocieties,mutualinsurers)
operated in different ways, but the
underlying reason for existence –
self-help – was the common theme.
The heritage of traditional mutuality2
“The starting point is to understand
where traditional mutuality came from.”
Public Services: Made Mutual 8
Perhapsthebestknownwastheco-operative
model, where customers bought goods at the local
shop,andattheendoftheyearmightreceivea
dividendbasedonwhattheyhadboughtduringthe
year(theco-op“divi”).Thiswasnotadistribution
of profit in modern terms; it was a post facto price
adjustment. The shop had to fix a price at which
to sell goods, and that price would be a mark-up
on the wholesale price paid, to take account of
overheadsandprovisionsintheusualway.Butif
at the end of the year the business had generated a
greater surplus than needed for the business, then
it had charged too much, and the surplus should be
returned to customers in proportion to what they
had paid.
Traditional mutuality emerged as a response to social
and economic need. It was the response of people
with often desperate needs to find a solution for
themselvesandothersintheircommunity.Itwas
basedonself-interest(theneedtoprovideformeand
myfamily),notphilanthropyorcharity;butthegenius
of mutuality was that it captured that self-interest,
andbychannellingitthroughcollectiveself-help,was
able to produce an economically sustainable business.
This was not just an economically sustainable way of
doing business. Founded upon principles of equality
and democracy, and requiring the interaction between
people(co-operation)workingtogethertomeettheir
collectiveneeds,ithadamuchmoreprofoundeffect
“Founded upon principles of equality and
democracy, and requiring the interaction between
people(co-operation)workingtogethertomeet
theircollectiveneeds”
upon society at large. I knew that my weekly payment
into the mutual fund brought some protection for
my family against my loss of income caused by an
accident at work, but they also protected my sick
neighbour, and the widow down the street.
So the mutual heritage was much more than a
sustainable business model. It was also a model for
human relationships, for society: consequently it
inculcated a different culture. But fundamentally –
andthisiswhereitisbecomingrelevantforusagain
today – it was a different model of ownership and
governance.
A mutual society was “owned” by its members.
The modern western mind generally has a narrow
understanding of “ownership”, denoting a right
oversomethingwhichcanbesoldformoney.The
ownership of a traditional mutual society was not
something which could be sold for money. The
members owned their society, in the sense that
ultimate constitutional control belonged to them: it
was for them to agree any change to the constitution,
towhattheirsocietywaspermittedtodo(objects)
orhowitwasgoverned.Nobodyelse“owned”their
society–therewasnoothergroup,suchasinvestor
shareholders behind the scenes. But they could not
selltheirmembershipformoney.Indeedthevery
act of doing so would be a destruction of the mutual
covenantbetweenthemembers,whatwehavecome
to call “demutualisation”.1
Public Services: Made Mutual9
Ownership by members resulted
inverydifferentgovernance
arrangements from those of
traditional business. All members
weretreatedequally,andevery
memberhadonevote,inspite
ofvaryingamountsofcapital
contributionandvaryingamounts
of trade. Members elected
representativesfromamongst
their number to form a board or
committeetohaveresponsibility
foroverseeingtheaffairsofthe
society on behalf of its members.
Similar in many respects to the
board of directors of a company,
that board commonly had the
power to appoint and employ a
manager to run the day to day
affairs of the society. Such a
manager, who may become the
chief officer of a substantial work-
force in a successful society, was
not a member of the board or
committee: lacking any electoral
mandate from the members, a
managerremainedtheservantof
the elected committee.
These were the essential
characteristics of traditional
mutuality.
1 This is what has happened to many building societies since
the 1980s, where the membership has usually been persuaded
bymanagementtovoteforconversionoftheirsocietyintoa
company, resulting in a windfall profit to the members at the
time, but the destruction of the mutual bond.
Public Services: Made Mutual 10
Traditional mutuality was a remarkable success story.
By 1948, 14 million people were members of friendly
societies as part of this self-help, bottom-up method
ofsocialprovision.Itisanironythatthecreationof
stateprovisionplayedabigpartinthedemiseofone
partofthetraditionalmovement,asmanymutual
and friendly societies were swept away to introduce
universalprovision.
It was greed that did such damage to another
part of the traditional mutual sector – the building
societies. Although management argued at the
timethattheirsocietiesneededtoconvertinto
publiclimitedcompaniesinordertohaveaccessto
the capital markets to be able to compete with high
street banks, the reality was that managers enjoyed
substantial increases in remuneration, and members
receivedwindfallbonusesoutofthereserveswhich
hadbeenbuiltupovermanypreviousgenerations..
Withhindsight,itwasasaddevelopment.Tenof
the largest building societies were demutualised,
accountingforover70%ofthesector’sassets.2
Thedeclineoftheretailco-operativesectorinthe
latter decades of the last century was due to more
mundane factors; the growth of competition on the
high street and the rapid rise of PLC competitors,
theinabilitytomatchtheirexecutiveremuneration
“By 1948, 14 million people were members of friendly
societies as part of this self-help, bottom-up method
ofsocialprovision.”
From traditional to modern mutuality3
2 By2008,alltenhadeitherlosttheirindependenceandbeentakenoverbyotherbanks,or
hadfailedandbeentakenintopublicownership–see“Convertingfailedfinancialinstitutions
into mutual organisations”: http://www.mutuo.co.uk/wp-content/shared/remutualisation.pdf
3 The creation of Glas Cymru as the owner of Welsh Water a step in that direction, though
without open membership
packages,theincreasedmobilityofcustomersgiving
themevengreaterchoice,andtheundoubteddecline
inthequalityoftheofferingbyretailco-operativesall
contributedtothedeclinefromover30%inthemid
60s,tolessthan5%inthenewmillennium.
From dominance to decimation in less than half a
century, traditional mutuality took a battering. By the
early twentieth century, it no longer made any sense
to people to join something to access basic goods and
services.Theageofconsumerismandindividualism,
limitless opportunities created by the internet, and
much-increased prosperity as well made us all feel
that we were in charge of our own destinies now. How
that has all changed since September 2008.
The turning point for mutuality in fact began a
number of years earlier. By the late 1990s, there
were some in the utilities sector who felt that the
recentreforms(transferintoPLCownershipwitha
state appointed regulator to protect the interests of
thepublic)weremerelytransitionaltosomeformof
modern mutuality. This was not to be3 .However,a
fewyearslaterreformoftheNationalHealthService
ledtothedevelopmentofanewformofownership.
The creation of Foundation Trusts in 2003 was
ahighlysignificantdevelopment.Modelledon
traditionalco-operativeandmutualorganisations,
they were a new kind of corporate entity known as
a“publicbenefitcorporation”,createdviahealth
legislation.FoundationTrustshavepatients,
Public Services: Made Mutual11
public and staff as members,
arepresentativebodycalled
aboardofgovernors(mainly
elected by and from members,
and partly appointed by partner
organisations),andtheyarerun
byaboardofexecutiveandnon-
executivedirectors.
It was an attempt to create a new
business structure for the ownership
anddeliveryofpublicservices,
but one that was separated from
the state. To those familiar with
traditional co-operation, there
seemed to be a limited role for
members, and limited democratic
controlovermanagement.Even
though the Secretary of State
for Health no longer remained
responsible to Parliament for their
operation, the still state retained
substantial control as commissioner,
through determining the prices at
which Foundation Trusts sold their
services(tariff),andindirectlyas
the appointer of the regulator of
Foundation Trusts.
However,thecreationof
Foundation Trusts was significant
for what it did, rather than for
what it failed to do. In preparing
their forward plans, the board of
directors of a Foundation Trust
wasobligedtohaveregardtothe
viewsoftheboardofgovernors.4
Such a built-in structural right for
thelocalcommunitytohavea
sayinlocalserviceswasaradical
step forwards. The introduction
of open membership reconnected
local people with the ownership
anddeliveryoflocalservices.It
was simply not possible to recreate
theindividualeconomiclinkwith
members, familiar in traditional
mutuality, as healthcare is free at
thepointofdeliveryintheNHS.5
However,membershipwasstill
sufficiently interesting to attract
more than 1.5 million people.
At the time when Foundation
Trusts were being created in
2002/3, the core principle at the
heart of mutuality – ownership by
members – was already coming
back into use. The improbable
context for this was football.
Theinabilityoffanstohavean
adequate say in the running
of their club had long been a
sourceofgrievance,andthework
4 The power of the
boardofgovernors
toremovenon-
executivedirectors
givessometeeth
to this
5 Patient choice,
payment by results
andindividual
budgetsdohavethat
potential.
undertaken in the late 90s in
developingmodernmutualityhad
created a new membership model
which was capable of addressing
this. This work, and the founding
of Supporters Direct as a national
body to facilitate the emergence of
Supporters Trusts has resulted in
athrivingnewmutualmovement
of football fans in the majority
of professional football clubs in
the UK, in some cases leading to
outright ownership of the club.
Social housing was the next
area of the public sector in
which membership was being
introduced.Thedevelopmentof
the Community Housing Mutual
model for the Welsh Assembly
Government,andthesubsequent
emergence of the Community
Gatewaymodel,providedan
alternativeapproachforlocal
authorities considering the
future ownership of housing
stock. In traditional housing
associations, there was no
democratic accountability of the
board to thoselivinginthehousing
stock they controlled. Through
the introduction of a new form of
Public Services: Made Mutual 12
mutuality, a relationship of membership was added to
that of tenant, creating the potential for a different
dynamic when tenants were balloted on a proposed
stock transfer.
Overthenextfewyears,“newmutuals”emergedin
a number of sectors including local authority leisure
services,SureStartchildren’scentres,andout-of-
hoursGPservices.Alloftheseorganisationswere
characterised by member-ownership. In some it was
userandstaffmembership;withGPservicesitwas
juststaffmembership(GPsandotherstaff).Allsuch
organisationsemployedaprofessionalexecutive,which
wasappointedandcouldberemovedbyarepresentative
boarddrawnfromavarietyofdifferentinterests.
The latest sector to emerge using a new mutual form is
theco-operativetrustschoolmovement.Asthename
suggests,thisinvolvesaco-operativestylemembership
organisation as a “trust” to own assets and appoint
governors,underthelastgovernment’sprogrammeto
encourage all schools to become trust schools.
Thisre-emergenceofmutualityinadiverserange
of new sectors has witnessed not just the trialling
ofavarietyofdifferentmembershipstructures.It
has also seen much experimentation and learning
aboutdifferentapproachestogovernance,including
directly-elected board members, professional non-
executives,andtwo-tiergovernancesuchasthe
Foundation Trusts.
Oneofthemaindifferencesfromthegovernance
of PLCs and traditional mutuality has been the
introduction of a range of different interests within
the organisational structure, such as the board
ofgovernorsinaFoundationTrust.Bycreatinga
forum within the structure through which a number
ofdifferentvoicescanbeheard,newmutualshave
brokennewground.Suchdevelopmentshavenot
just helped to break down the domination of a
singleinterest-group,buttheyhavealsoenabled
constructivepartnershiporco-operativeworking
between different sectors and across traditional
boundaries(e.g.healthandlocalgovernment,users
andstaff,primaryandsecondarycare).Theseare
significantdevelopmentstheimpactofwhichisnot
yet widely appreciated.
At the same time as the much more high-profile
developmentsofcorporategovernanceinthePLC
sector(theCompaniesAct2006,theCadburyreport,
Higgsreport,andtheCombinedCode),mutualityhas
also been going through its own significant statutory
evolutionandchange,viaprimaryandsecondary
legislation, and the emergence of a number of
codesofgovernance.Ithasundergonechangein
ordertoprovidebettermodelsforbusinesstoday,
and to rebuild and recreate new mechanisms for
accountability.
Somutualityhasevolvedrapidlyoverthelastten
years.Whathasitachieved?
“By creating a forum within the structure through
whichanumberofdifferentvoicescanbeheard,new
mutualshavebrokennewground.”
Public Services: Made Mutual13
Anoverviewoftheemergingnewmutualmovement,and
how it has built upon traditional mutuality, would identify
the following areas in which it has broken new ground in
developingbetterandmoreaccountablebusinessmodels.
Governance competence
Anabsolutepriority,whatevertheformofcorporate
ownership,isgovernancecompetence–havingthe
right people in positions of responsibility so that
good decisions are made, and the business well
managed.Thesubjectof“corporategovernance”has
developedgreatlysincetheCadburyReportin1991.
Nogovernancestructurecanguarantee the quality
of decision-making and management6, but if well-
designed,thegovernancestructureshouldgivesome
assurance of quality, making success more likely and
failure less likely.
If the performance of financial mutuals in the recent
credit crisis is compared with that of PLCs, it could
be argued that the mutual model is more successful
at managing risk. This may be due to a different
ownership structure an corporate purpose, resulting
inamorerisk-averseapproachtobusiness.
Aninterestingfeatureofmutualgovernanceis
theholdingofofficebyindividualswhohavebeen
elected,ratherthanappointed.Howcangovernance
competence be assured with such arrangements?
Below a certain size and complexity of business,
this does not tend to be a significant issue, because
theconstitutionnormallyprovidesforappointed
executivestomanagethedaytodaybusiness,
therebyprovidingsomeassuranceofcommercial
competence. In such a structure, bigger strategic
decisionsareusuallymadeontheadviceofthe
appointedprofessionalexecutives.Eveninlarger
traditional mutual businesses, this issue is addressed
by a combination of elected board members and
professionalnon-executivedirectors(building
societies),oratightdefinitionoftheroleofthe
electedboard(retailco-operatives).7
However,fromtheperspectiveofthosewithno
experience of traditional mutuality, and particularly of
those only familiar with a PLC model, the holding of
significantofficebyindividualselectedbyandfroman
open constituency of members can be problematic.8
Whateveryourstandpointonthisissue,therearetwo
unarguabletruthsattheheartofgovernance:(1)the
running of any business requires a degree of business
competence,andthegovernancearrangementsneed
tomakecredibleprovisiontogiveadequateassurance
ofsuchcompetence;and(2)the“competent”partof
businessmanagementmustbelocatedwithingovernance
arrangements which subject those managers to
oversightandaccountability.Thisbalancebetween
governancecompetenceandaccountabilityiscrucial,
and in the emergence of modern mutuality, important
new ideas are emerging.
Out of the Foundation Trust model there is emerging
anapproachtothegovernanceoflargenewmutual
businesseswhichhasaboardofappointedexecutive
“It is important today for mutual organisations to be
transparently different from organisations which exist
andtradeforaprivatebenefit”
The achievements of ‘new mutuality’4
6 Enron, Lehmans and other high-profile corporate failures illustrate this
7 TheCo-operativeGrouphasalsonowappointedprofessionalnon-executivedirectors
8 NeitherPLCsnottraditionalmutualscanclaimtohavetheperfectanswer.Corporate
disastersandscandalhappeninspiteofwell-designedstructuresandcodesofgovernance.
Human beings are fallible.
Public Services: Made Mutual15
andnon-executivedirectors,
and another body within the
governancewhichbothplaysapart
in the chain of accountability of the
boardofdirectors,butalsoprovides
aforumforavarietyofdifferent
voicestobeheard.Thisinvolvesa
new approach to the accountability
ofexecutivedirectors,inwhich
thenon-executivedirectorsand
theboardofgovernorsplayan
important role.9
Membership
A wider range of constituencies of
interest is emerging at member-
level.Thetraditionalmutual
societies tended to be user-based
only.10However,mostofthenew
mutualorganisationshavemore
than one constituency of members
–NHSFoundationTrusts(patients,
publicandstaff);leisureservices
(usersandstaff);out-of-hours
primarycare(GPs,otherstaff).
The exceptions are Supporters
Trustswhicharevehiclesforthe
fans; and social housing, where
membership is currently limited to
users(tenants).
Representation
A wider range of interests is also
being represented at board or
9 Seehttp://www.cobbetts.com/OurServices/healthcarelawuk/
WhatistheroleofthenonexecutivedirectorsofanNHSfoundationtrust
10 Itisrighttopointoutthatmostofthelargeretailconsumerco-operativesallowstafftobecome
members,thoughtheydonothavetheirownconstituency.Staffcaptureispreventedbyquotasat
boardlevel.Also,anumberof“workerco-operatives”haveemergedfromthe1960sonwards.
strategiclevel.Theconstitutions
tendtoprovideforacarefully
constructed balance of different
voicesatarepresentativelevel,
comprisingelectedrepresentatives
of the membership constituencies,
andappointedrepresentatives
from key sectors or organisations
(usuallypublicsector,orother
mutual/communitybenefit)whose
support is critical to success.
Public or community purpose
Traditional mutuality emerged
at a time before the existence
ofmodernpublicservices.In
today’scontext,traditionalmutual
organisations are sometimes
characterisedorperceivedas
existingfortheprivatebenefitof
their members. This is misleading
and inaccurate, and ignores
thefactthattheyhaveopen
membership, and exist for any who
wishtoaccesstheirservices.
Modern mutual organisations tend
tohaveamoreovertlypublicor
community purpose. This may
be demonstrable through their
corporateform(publicbenefit
corporation, community benefit
society),ortheirconstitutional
commitment to community or
public benefit.
It is important today for mutual
organisations to be transparently
different from organisations
which exist and trade for a
privatebenefit,becauseitis
oftenthatverydifferencewhich
istheirattractivenessorunique
selling point to commissioners,
customers, staff, funders, or other
potential supporters.
What next?
Sothesearetheachievementsso
far of the emerging new mutuality
– in membership, representation,
governancecompetence,and
community purpose. Where is it
going next?
Public Services: Made Mutual 16
Thefirstpointtomakeisthattheachievementsto
date represent work-in-progress.
Greatstrideshavebeenmadeindevelopingtheidea
of membership, with a clearer focus on what it brings
(voice,informationandrepresentation),abetter
understandingofwhatmotivatespeopletobecome
a member and a more realistic picture of what it can
achieve.Butwearestillworkingtorecapturethe
crucial economic link between the member and their
organisation,whichisthemostpowerfuldriverof
engagement and participation.
Therepresentationofwiderinterestsatstrategiclevel
(liketheboardofgovernorsofafoundationtrust)is
a big step forwards; but it takes time before people
understand the nature of the role, how it can be used
and what contribution it can make to the business. It
also takes time for the partner organisations which
havearighttoappointrepresentativestounderstand
howtheycanusethenewopportunity–toachievea
newwayofcollaborativeworking.
Nevertheless,thesedevelopments,togetherwith
thedevelopmentsingovernancecompetenceand
commitmenttocommunitypurpose,providea
platformforaddressingthemainissuesraisedabove
inthepublicandprivatedomains.
Public domain
The new model for the ownership of public
servicesisbecomingclear:organisationsowned
by constituencies of users and staff, permanently
committed to carrying on business in the public
or community interest, and run by professionally
competentexecutiveswhoareheldtoaccountwithin
arepresentativestructurewhichdrivesefficiencyand
success in the public interest.
Peopleneedtohaveincentivesiftheyaretochange
thewaytheybehave,ortospendthetimemaking
constructivecriticismtodriveimprovement.Weare
startingtoseetheopportunityforsuchincentivesto
emerge,withsuchdevelopmentsaspersonalbudgets,
and the possibility of co-payment. Staff also need to
beincentivisedtodriveimprovement;sharinginthe
membershipandrepresentativestructuresispartof
this, and benefiting directly when their organisation
doeswellalsoneedstobedevelopedfurther.
A membership-based model of ownership for public
servicesisnotjustimportanttoprovideaviable
alternativetoreplacestate-ownership.Itisalso
important in order to meet the pressing need for
drasticcutsandreconfigurationofservices.There
isnodoubtthatdramaticchangesdeliveredbya
state-ownedandcontrolledservicewillmeetfierce
resistance. The problem we face is that the public has
becomeusedtotheavailabilityofalevelofservices,
whilst being detached from the cost implications of
deliveringsuchservices.However,whilstpeopleare
likely to be hostile to any change which amounts to a
reduction of what they currently enjoy, many people
areneverthelessrealistic.Itisclearthattheseare
economicallychallengingtimes,andpublicservicesneed
torespond.Havingtheopportunitytoplaysomerole,
What next for new mutuality?5
“Greatstrideshavebeenmadeindeveloping
the idea of membership, with a clearer focus on
what it brings”
Public Services: Made Mutual17
eveniflimited,inmakingdifficult
changes is likely to be preferable to
havingchangesmadebydetached
public sector managers.
Ofcourseservice-usersandstaffwill
resist change; but where change is
unavoidable,service-usersandstaff
are in the best position to optimise
the rationalising or rationing of
resource in the wider public interest.
Private domain
Manypeople(includingthe
Coalition)overrecentmonthshave
expressed a desire for another
business model.
Traditionalinvestor-ownership
has been the corner-stone of the
UK’sandmanyothereconomies
for nearly two hundred years. It
has been a story of continual
evolution,andthatevolutionhas
theninformedthedevelopmentof
ourlaws(bothUK,EUandbeyond),
of commercial practices, and of the
businesses and institutions which
make up our economy.
Finding “another business model” is
a huge task. Contrary to what some
maythink,itdoesnotjustinvolve
getting some lawyers to come up
withsomeclevernewconstitutions.
Essentially,itinvolvescoming
up with a different way of doing
business, a different way of funding
business, and a different way of
owningbusiness.Itinvolvescoming
upwithsomealternativetotheprofit
motiveasthemechanismtodrive
business performance and renewal.
As far as we are aware, the only
“alternativebusinessmodel”which
hasworkedonanyscaleoverthe
last two hundred years is mutuality.
It is based upon the principle of
providinggoodsandservicesfor
all who need them, not the profit
motive(thoughithasanequal
imperativetobeprofitable);soitis
amechanismforprovidingservices,
notfordeliveringaprofit.Thereare
noinvestorsinmutualorganisations.
Many people find this impossible to
understand.Theycannotconceive
of a business which does not
existinordertodeliverafinancial
reward for somebody; they do not
understand how such a business can
befunded.Theyassume,effectively,
thatthepursuitofprivategainis
an essential ingredient of human
nature, and that it is the only basis
onwhichbusinesscaneversucceed.
Traditionalmutualityprovedthe
contrary, in times gone by.
Can traditional mutuality be re-
inventedinamodernformatto
meettoday’sneeds?
Yes it can be, and actually, it
is. Work is continuing on the
modernisationofco-operative
capital,tomoveawayfromthe
historic model. There needs
to be a wider understanding
and appreciation of what can
beachievedusingadifferent
business model, which is based
ontheprovisionofcapitalthat
may generate some financial
compensation for its use, but where
themainbenefitistheavailability
ofaservicewhichwouldotherwise
notbeavailable.
Itispossibletoprovideincentives
to staff, within the context of
mutuality, so that they are
rewardedfordeliveringimproved
performance. It would be difficult
todriveforwardthenecessary
improvementsinefficiencyand
outputwithoutsuchincentives.
Public Services: Made Mutual 18
Ashasbeenbrieflydescribedabove,greatstrides
havebeenmadeoverthelasttenyearsorsoin
modernisingmutuality,improvingitsabilitytoprovide
efficientmodernformsofownershipandgovernance
enabling it to play an increasing role in modern
society.
HowevertheCoalition’sprogrammeforgovernment
now sets a new agenda, and creates a new urgency for
drivingthegrowthofmodernmutuality.
What do we mean?
Intheirforeword,DavidCameronandNickClegg
are aspiring to “completely recast the relationship
between people and the state; citizens empowered;
individualopportunityextended;communitiescoming
togethertomakelivesbetter.”Asdescribedinthe
openingparagraphsabove,thesearethethree
basic themes which they articulate - reducing big
government,redistributingpowerandenablingpeople
totakecontroloftheirlives.Buthowdoyoureduce
biggovernmentandredistributepowerbacktopeople
in communities? What can you do to enable people to
takecontroloftheirlives?
One clear way of doing so is by encouraging the
creationoforganisationswhichindividualsin
communities own and control, through which they
canreclaimthepowerwhichhaseffectivelybeen
all too willingly surrendered by citizens to the state
New mutuality and the Coalition’s programme for government6
overrecentdecades.Mechanismsareneeded,
whichmodernmutualitycanhelptoprovide,which
enable people to claim back responsibility for making
decisionsaffectingtheirlives–even(ormaybe
especially)whensuchdecisionsarepainfulones
aboutreconfiguringessentialservices.
Wehaveneverbeeninterestedinpromotingmutuality
for ideological or political reasons. Our only interest
isinsomethingthatworks,somethingthatprovidesa
meansofdeliveringgoodsandservices,andisdriven
todosoefficientlyandsuccessfullybytheservice-
users and staff who depend upon it.
Modern mutuality needs to play a bigger part in the
efficientandsuccessfuldeliveryofgoodsandservices
today. But modern mutuality also needs to be a
meanstotheendofrecreatingacivicsocietyinwhich
individualswanttotakeresponsibilityandcontrol
oversuchmatters,ratherthanhandingthemoverto
others to decide in their behalf.
Governmentcanhelptoprovidethemeans,butweas
citizensmustworktogethertoachievetheend.
“Governmentcanhelptoprovidethe
means, but we as citizens must work
togethertoachievetheend.”
Public Services: Made Mutual19
Public Services: Made Mutual 20
Cliff Mills
CliffMillsisapractitionerinthelawandgovernanceofco-operative,mutualandmembership
basedorganisations.HehasadvisedtheUK’sleadingco-operativeretailsocietiesformorethan15
years,playedasignificantpartinthedevelopmentofmutualsocietylegislation,andestablishedthe
constitutionandgovernanceofasubstantialnumberofNHSFoundationTrusts.
HehasworkedextensivelywithMutuooverthelastdecadeinthedevelopmentandapplicationof
mutualandco-operativemodelsofownershipforpublicservices.Thesehaveincludedhealthcare,
socialhousing,leisureservices,educationandchildren’sservices,Theaimhasbeentocreate
robust models for large organisations which are trading for a public or community purpose, with an
ownershipandgovernancestructurebasedonstaff,userandlocalcommunitymembership.
As well as being Principal Associate with Mutuo, Cliff is a consultant with Capsticks Solicitors LLP and
Cobbetts LLP.
Mutuo
Mutuo brings together the different wings of the mutual sector to promote a better understanding
of mutuals and to encourage mutual approaches to business and public policy. Through Mutuo,
consumerco-operatives,buildingsocieties,mutualinsurersandfriendlysocietiesandothermutuals
worktogethertopromotetheirsharedintereststotheGovernment,mediaandotherdecision
makers. Since 2001, Mutuo has worked to promote new mutuals. This has led to renewed growth
in the mutual sector, with public sector mutuals established in health, housing and education and
new community based businesses ranging from football to childcare, with a total mutual sector now
turningover£95billioneachyear.
www.mutuo.co.uk 0208 387 1259
Design and Print by Multi Image Ltd: 01727 848088
Published by Mutuo
c/o Westminster Bridge Partnership Ltd
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Tel: 0208 387 1259
Fax: 0208 387 1264
www.mutuo.co.uk
ISBN 0-9544127-1-XX
October 2010
This pamphlet, or any part of it, may not be reproduced without permission of the publishers.